How a Service Department Becomes Profitable | SDR #303

Welcome, everybody, to the big show. We got a fun one for you today. How a service department becomes profitable. It's five easy steps. They're not actually easy, but they're easy for us to tell you. And they really are the secret. The. The secret matrix. In a sense, there's a lot of fun stuff in the news, and we talk about a couple things that are driving me crazy and much, much more. Coming up on this edition of Service Drive Rev.

I'm very upset about two things.

Lay it on me.

I think you know what the first one is. My lucky coffee mug is missing.

One of the only mugs I see you drinking out of Sands.

Not only do I feel like that's my lucky coffee mug, I like it. Like, I like it a lot.

Right.

And it's been missing for about a week, and I'm getting out of sorts, and it's starting to upset me.

Well, there was. There was, like, warning missing days. Right.

Do you remember the times I was looking for, but eventually it just appeared?

Yes. You would say, hey, where's my mug? And then the next day it would show up. But, like, as a. As a good soldier, like when you say it's missing, I personally go and look in all the rooms in this area.

Dishwasher.

Look in the dishwasher, look in the sink. Look in the backs of the cabin just to make sure. And it's nowhere to be found. But then magically shows up the next day.

But I got a lead. Somebody said that they might have seen it down at the warehouse.

Okay.

Now, why those kids down at the warehouse are taking my lucky mug. I don't understand. I don't understand why they would do that. They don't know better.

Yeah.

This is what it is.

Second thing.

Okay. You want me to guess?

Yeah.

Okay. My second thought is that it is getting towards the end of the boating season and you still have not put the boat and jet skis away. And you're worried about this.

Well, for sure. The weather's changed.

So the.

The. The last weekend was the weekend to pull your boat out. We had our Leadership Squared workshop experience. So I didn't get to go. So I think I'll go next week. But it'll just be pulling them out. I won't be able to ride them because it'll probably be raining. It's raining up there this week.

Does it ever. At what point does it turn from the raining to like, you shouldn't have your boat in water? Does that happen really fast up there?

Yeah, well, it kind of is. Happening because of the wind. The wind.

So the wind damages it, runs it up against the dock and everything. Okay. By the way, that leadership workshop was amazing.

That was my second thing is your inconsistency with your dirty joke before. So Christian has this thing he likes to do. It started when we were. When we were kind of playing with this content in Florida. We did it.

I don't know what made me start.

For Morgan, and we did it for South Southeast Toyota. Southeast Toyota. But Christian would walk up to me right before he's gonna start. Like, if the thing starts at 8 in the morning, at 7:58, he'd walk up and tell me, you know one of those jokes where you're like, you feel guilty hearing the joke, so you got to work through all that. Like, you. First you laugh, and then you feel guilty because you laughed at it, and then it's action. But you didn't. You didn't do it this time. You did it the second day, but not the first day.

Yeah. So that messed you up a little bit. I can be more consistent. I had stuff ready to go too.

You did?

Yeah.

What got. Was it because there were so many people?

Yeah. And I felt like you were already in the zone a little bit. There was a thing, like, I. I feel like the. My whole purpose behind telling you that joke is because, one, I love to make you laugh, and two, is I do think that there's something like you having to laugh at something that you probably shouldn't laugh about brings some sort of, like, calm, and you're like, oh, this leadership's no problem. I just laughed at a joke about someone just awful. And. And then you go out and you do this amazing presentation. It's possible that the joke has nothing to do with the presentation, but in my mind, it's great. But what I'm hearing you say is keep doing it.

Well, I don't know. I need some consistency. Like, I either. I either need it to consistently happen.

Or not or never again.

Like, it. It was. I don't. I don't think that the. The first day of that is hard for me anymore. The content's so good. People are like. I remember telling you before the. We did it last week. I was like, these people have no idea what's about to happen.

Yeah.

And then they didn't. And then it happened, and now they're. They're completely different change. Like my. My buddy Mike said, they're. They're. They're different people, is what he said.

Like, that's no easy.

It is we're going at personality.

That's right.

There's. I don't think there's anything like that.

And you can't. I would say that there's just. It's not an option to be who you used to be. Like you.

It is a weird thing knowing what's about to happen and them not knowing what's about to happen. Yeah, that is a weird thing. But it's exciting. Like, I. It's really fun. Like, I. I can't sleep the night before because I'm so excited.

Yeah. Well, this was. This was the best one yet. And I've seen a couple of these now and.

What do you mean you've seen them all?

Yeah, that's true. I've seen every single one of them.

Yeah.

But.

But this one, I think by the.

Hundredth time, we'll have it pretty figured.

Yeah. It's just going to keep getting better. But the thing that I think you and I both noticed was that the internal conversation, like, there were the conversations. We have kind of observed certain conversations happening. Like, sometimes it was the end of the first day or the beginning of the second day. Now the conversations that would normally not come out till the end are happening halfway through. Like, you're. You're hardwiring in faster. Does that make sense?

Yeah, but. But that's because.

I'm going for it.

Yeah.

Like, when we were doing it before, I wasn't going for it because a lot of those people weren't ready for it. Like, it's different when you're doing it to a middle manager also, too. Like the library, the home field advantage is so great.

It's unbelievable, the difference.

It is funny that we kind of built this whole thing for that.

Yeah.

But it is that. And the software, like, we have. We have the software that runs the thing. So it's not like it's a PowerPoint. Like, there's videos and lights and like diff. There's five screens going on.

Yep. 20. Yes, there's five. Plus there's also audio and visual effects that go to it.

And the lights, like, so, like, the lights dim. Like, the only thing so far we don't have is, like, smell, which I think we could figure out.

I think smell. And also like wind or heat. Heat. And wind would be really cool.

Yeah. If you could heat up the room.

Yeah, that would be pretty neat. But yeah. So the. The way I described it to somebody else the other day was that it reminds me of if you. Well, we've gone. You and I have gone. But if anyone's gone and taken a show in at the Sphere in Las Vegas. Like it's a physical experience. Like things are happening to you as opposed to. It's just. It's unlike anything you could go see anywhere else. And everything about the library feeds into the uniqueness of the, of the workshop. It's super. It's super cool.

Very fun. We're making a lot of friends.

Yeah.

I think we're. We're making people better.

Yeah.

In fact, I'm sure of it.

You know who doesn't get enough attention? You. Cannibals. I get plenty of attention.

Cannibals?

Yeah, cannibals. People don't talk enough about cannibals. But there's two cannibals. So they're sitting on a, on a log by a campfire. And one of the cannibals says, I can't stand my mother in law. The other cannibal says, well, have you tried the potatoes?

It's a cannibal joke. Yeah, yeah.

Trying to branch out a little bit.

Trying to bring those back into style.

Right. I don't know. Everybody deserves their place.

Like a Pollock joke.

Everybody serves their plates at the table.

That was too much, maybe. I don't know. You want to talk about news?

All right, let's talk news. All right. So the first thing I thought this was really interesting. There was a survey that was done. This is out of the Automotive News, by the way, but who did this Survey? Dealerator and Cars.com they surveyed customers and tried to find out how many of them are buying additional service recommendations on average. And to me, it was really overwhelmingly surprising. But on they, they did two segments. They called it the mass market segment and the luxury segment. But on the mass market segment.

66% of the customers are declining additional service work. So 2 out of 3 customers are just saying no. Just wrap it up. And then it's not much better. On the luxury, instead of 66%, 62% of the customers are saying no. Like 34 and 38% closes.

And is this to maintenance or repair or both?

Both. Maintenance or repair. It's just essentially if you offer something. Yeah. So it's the MPI portion at the end.

That seems terrible. I don't think I ever experienced that. Ever.

Yeah, so the thing that kind of.

Scared me about 90 or like you.

Need something for your car and you're telling me no.

Yeah.

And I'm okay with that. But here's the thing, is that this is where I. And I hope the industry doesn't do this, but your average person, that's like, oh, crap, you know, 34. Only 34 of people are buying all the stuff is what is your average owner, GM gonna think that they need for their service department advisor training on specifically what Price. Overcoming objections. Price. So all of that stuff. But your experience. My experience is that when people say no, why do they say no?

Well, I think it's an outcome of the system, how they feel even like.

When they get the information. You can.

I, I mean, hands down, we've proven it over and over again that you can increase your closing ratio through the system more than through advisor training. And we get. We have advisor training. It's good. I'm not opposed to it. Yeah, but the system plays a bigger part.

Yeah. If you're trying to overcome objections instead of fixing the system at the start, that's what you'll. Maybe you go from 32% to 34%. But the truth is it should be 70 or 80 or 90%.

I also always kind of find that overcoming objections is a lot of times badgering.

I think there's, there's a really good place for it on the sales side on variable because you just have to keep asking till you uncover the objection. On the service side, it just doesn't seem like you can ask that many times. I think you get maybe one or two. So that's the news today.

How a service department becomes profitable, that.

Is the golden question.

We got five things, and then two of the things are kind of two things.

So it could be five, it could be seven, depending on your, your math, how you do the math.

Okay, I like math.

The first one to, to make your service department profitable. And this is the biggest mistake we make as an industry. Forget about AI and all that is we don't explain how the financial statement works to the person running the department.

So we've got service managers out there that have been running their departments for 20 years that don't know how to read a financial statement, which means they don't know how to affect a financial statement.

Yeah, half of them never seen it. They don't even know what it looks like.

And the, the. If you send them to nada or whatever, they come back more confused than when they left is in regards to the financial. The other thing is a lot of times they don't share it, so the manager never sees it anyways.

That's right.

So if you want to make your department profitable, you have to make the person in charge of the department understand how profitability works.

It's one of the only industries I can think of where we come up with reasons not to focus on profitability. Like, it's saying it's this thing when it's really this thing. I don't. I can't think of too many other industries that are like that. It's fascinating to me.

American politics.

Okay, that's fair. I didn't expect you to say that.

We don't care about our schools.

Right? Yeah, but.

I don't know. What are the. What are the latest things? No taxes on tips for waiters or gender stuff. What else? Abortion.

I read a thing the other day, and I don't know if it's true or not. I try not to get too far into the news, but I don't know if you heard this or not, that there's a proposal out there that people will have to pay capital gains taxes before they actually, like, sell the asset. Have you heard this?

Oh, yeah. That's a. That's an idea brewed up right here in. In your home state of California.

I don't understand. That is the saddest thing I've ever heard in my entire life.

That you would have to do that. But. Okay, so politics, service departments. Got it. Okay.

Number two, you got to know how to price and sell things. This one is a twofer, right? Two for one. Yeah, you got to know how to price things.

Most of the time, we don't understand a pricing strategy. What we're doing is copying what we think everybody else has done. But we're not pricing.

Intentionally, so we don't have a system or it's not designed for an outcome, which should be profitability. But if you understand how to read the financial, then you're quickly going to need more gross. And if you don't know how to price things, you don't know how to create more gross, or you spend your.

Way into more gross.

Then how do you sell it once you price it?

That's right.

So it's a. It's kind of like a. What do they call it? A Russian doll.

Oh, yeah. Where there's like, one.

Right. The next one is systems.

Now I'm. I'm going to give you four.

So you want. So everybody understands something that I figured out maybe after I fix, like 10 service departments, and I've fixed a lot of service departments in my life. But very early on, I realized one thing about systems, and number four is people.

Systems come before people, not the other way around. If you put good people into bad systems, you will burn them up. They will be ineffective. If you have good systems and you put an average person in there, they will outperform the Matrix.

That's right.

You gotta have systems first. And we don't understand how to design systems. Most of what we're doing is what we've always done. It's very inefficient the way that we've done things for 100 years in our business.

Yeah. It is the.

It is the copy of a copy of a copy of a copy. And like, each one gets a little bit dimmer. And I think it's just. We keep going. I think in the movie. I don't know if anybody else remembers this thing from the 80s with Michael Keaton called Multiplicity, where the copies just kept getting worse and worse.

Michael Keaton.

I do too.

Number four is people.

Yeah. So I was gonna ask your thoughts on this. And the systems and people thing is something I talk about pretty regularly on strategy sessions with potential clients. Why do you think it's so mentally hard for people to go systems first when just lead with people first? If I just have the right people, as I hear that pretty regularly.

You want to guess?

I.

I truly don't know.

Do you understand what cognitive bias means.

Where you are predisposed to think a certain way?

Yeah. If you're a person, who would you favor?

People. Because you have more importance on the person. If you're a person. Yeah.

There's a great book everybody should read. What's it called?

The Person the Situation, written by a.

Couple Stanford professors that proves over and over again that the situation has more effect on the outcome than the person.

In everything. And the example at the top of the book, not to ruin it for anybody, but the example at the top of the book is football players getting drafted.

Where you get drafted determines how successful you're going to be way more than how good of a player you are. Because if you get drafted by the Cleveland Browns or, you know.

Whatever, Dallas Cowboys. Oh, you're probably not going to make it. Yeah. So people. And then the. The thing about the people is you got to be able to understand that technicians play a different role than advisors. They're a different type of personality, different measurables.

It's all different in the management. Same thing. A manager is different. You know, you have to be able to tell the difference and you have to be able to qualify who are performers and who aren't. Number five.

You got to retain customers. It's about relationships and retention. And people need to leave appreciating what we did and feeling like a friend, not hating what we did and feeling like a number. Because it costs a lot of money for a service department to market and get a new customer in. It's way easier to keep the customers that you have. The key to profitability is to keep the ones that you already have, not have to go out and find new ones.

Yeah.

Oddly enough, if you keep enough of the ones you have, they'll, they'll tell.

Their friends and by far it's the cheapest way to maintain your business.

Too easy.

It's almost too easy. I think the other thing, and this goes back to the article. Right. When you think about an advisor, if they stay at the same place. Right. So. So it behooves them to stay in their same place. But if you've had somebody that you've helped out five times, they're not saying no to anything.

So all that has to do with the retention. When someone's going to a new place to service their car every two visits, they never build a relationship so they'd never trust what was being said.

Key throwers.

Key throwers.

Bob throwers.

And or like credit card looking thing throwers. Yeah. It's so interesting to me that that fix could be easier if we let it be.

So how a service department becomes profitable. Number one, the manager has to understand the financials. Number two, we have to have a pricing strategy that's designed for an outcome and know how to sell. We have to have systems in place that are effective, that reduce inefficiencies. Number four, we need people, the right people in the right systems. And number five, we need to retain customers and have relationships with them, not treat them like a number or make them endure. Unthought out bad system. I love it.

If we, if we retain them in service, what do they end up doing?

Coming back and doing what?

Buying a car. Thanks you guys. We'll see you next time on Service Drive Revolution.

Thanks so much for watching this episode of Service Job Revolution. We're uploading new stuff every day, so make sure you subscribe. Subscribe and click the bell icon so you don't miss out. If you have a question you'd like us to answer on the show, call 8333 Ask SDR and we'll answer your question on the show. That's 8333 Ask SDR. For special deals on our books and training, head over to offers.chriscollinsinc.com now that's offers.chriscollinsInc.com I'm Chris Collins, and I'll see.

You in the next video.